FAR: Contingencies and commitments (ASC 450)

The rules, one page each

1. ASC 450 Loss Range: Best Estimate vs. MinimumContrasting cases

   For a probable, reasonably estimable loss, accrue the best estimate within the range. If no amount is better, accrue the minimum and disclose the nature of the contingency and any reasonably possible additional loss.

2. Insurance Recoveries Under ASC 450: When to RecordStep by step

   Recognize a loss when probable and reasonably estimable, without subtracting insurance. Recognize a separate reimbursement asset only when recovery is probable, limited to the recorded loss, and disclose gross exposure.

3. Contingencies and Subsequent Events: Adjust or Disclose?Timeline

   Adjust for evidence received before issuance that confirms conditions existing at the balance sheet date. Do not recognize new conditions arising after year-end in those statements; disclose material events when needed to prevent misleading statements.

4. Noncancelable Purchase Commitments: When to Record a LossStep by step

   For a firm, noncancelable inventory purchase commitment, accrue a probable, reasonably estimable loss existing at year-end. Without an effective offset, measure the loss as the excess of contract price over year-end market price.

5. ASC 450: Accrue or Disclose a Loss Contingency?Sort it

   Accrue probable, reasonably estimable losses at the best estimate, or the range minimum if none is better. Disclose probable unestimable losses, reasonably possible losses, and reasonably possible additional exposure. Remote losses generally require neither.

6. ASC 450: Calculate the Total Loss Contingency AccrualWorked example

   Accrue probable, reasonably estimable losses at the best estimate, or the range minimum if none is better. Reasonably possible losses and probable losses that cannot be reasonably estimated are disclosed, not accrued.